About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

2 Central Bank Decisions You Can Trade This Week

If you’re looking for more opportunities to grab pips this week, you might wanna keep tabs on these upcoming interest rate statements set to rock the forex market on Thursday.

BOE Monetary Policy Statement (1:00 pm GMT)

Will the hawks gain more support this time? Or will they side with the doves? Recall that a couple of BOE MPC members, namely Martin Weale and Ian McCafferty, have been voting to hike interest rates for the past three policy meetings. Since then, U.K. economic data hasn’t shown much progress, with consumer spending slowing down and inflationary pressures weakening.

Apart from that, the threat of a euro zone recession could to weigh on the BOE’s outlook, as this could result to slower trade activity and more uncertainty in Europe. With that, the BOE is widely expected to keep rates on hold at 0.50% and asset purchases unchanged at 375 billion GBP.

As always, forex traders will have to wait for the release of the BOE meeting minutes a couple of weeks later to see whether there were any changes in monetary policy bias or not. Unless the BOE pulls off a surprise easing move like the BOJ did last week, the British pound might be able to breathe a sigh of relief and stay afloat.

ECB Interest Rate Decision (1:45 pm GMT)

On the flip side, more dovish remarks are expected from ECB Governor Draghi and his men, although they might stop short of doling out additional stimulus. After all, the ECB has already cut several interest rates a couple of times this year and is already rolling out its targeted LTRO.

In their previous rate statement, ECB officials unveiled the details of their ABS (asset-backed securities) purchases, which are set to start this quarter and carry on for two years. Since then, the euro zone has seen a few not-so-bad reports, including some industry PMIs and the outcome of the bank stress tests. For now, there’s a good chance that the ECB could sit on its hands and wait for more data before making policy adjustments.

For some market analysts though, lack of ECB action this month only increases the odds of seeing QE or another round of rate cuts by December. After all, the possibility of deflation is still looming over the euro region and most central banks seem ready to pull out all the stops just to keep their respective currencies weak. The path of least resistance for the euro remains to the downside, especially against currencies whose central banks have shifted to a more hawkish stance.

Should the BOE and ECB policy biases show a bit of divergence then, EUR/GBP might show more downward momentum and possibly break below the key support zone around .7750. If that happens, the pair has around 600 pips to go before reaching the next area of interest!

EUR/GBP Weekly Forex Chart

Do you plan on trading these central bank events on Thursday? Don’t be shy to share your thoughts and trade ideas in our comment box below!